METALS MORNING VIEW 07/06: Mixed start for base metals prices amid increasing trade tensions

Three-month base metals prices on the London Metal Exchange were split into two camps on the morning of Thursday June 7, with copper leading aluminium and nickel higher, while the rest were little changed to weaker.

The three-month LME copper price, up by 0.6% at $7,281 per tonne, continues to be supported by supply-side fears stemming from labor negotiations at Chile’s Escondida mine and the closure of Sterlite’s Tuticorin mine in India. Aluminium and nickel followed the red metal upward with gains of 0.3% and 0.4% respectively.

Meanwhile, fresh deliveries into LME warehouses in the US port of New Orleans have capped gains in the LME’s three-month zinc price, little changed at $3,183 per tonne, while lead and tin consolidated following recent gains with declines of 0.2% and 0.4% respectively. On average, the LME base metals are showing a slight gain of 0.1%.

But trading volume was light, with 5,228 lots traded as at 6.29am London time.

Haven-demand was apparent on Wednesday after the dollar index continued to sink below 93.5. Gold and silver prices rose in response, but this morning prices for both precious metals were unchanged. In the platinum group metals this morning, platinum was up 0.3% to trade at $906 per oz, while palladium dipped 0.1% to $1,017.20 per oz.

Base metals prices on the Shanghai Futures Exchange were generally stronger this morning, up by an average of 0.7%. Strong gains were seen across most of the base metals, with only zinc in negative territory – down by 0.1%. As on the LME, copper outperformed its peers with a 2.4% gain to 54,260 yuan ($8,486) per tonne.

In other metals in China, the most-traded September iron ore contract on the Dalian Commodity Exchange edged 0.3% higher to 472.50 yuan per tonne, while on the SHFE, steel rebar prices rose by 2.5%, silver prices increased by 0.4% and gold prices dipped by 0.2%. Spot copper prices in Changjiang were up by 2% at 53,540-53,770 yuan per tonne and the LME/Shanghai copper arbitrage ratio firmed to 7.90.

Equity markets in Asia were mainly positive on Thursday: Nikkei (+0.87%), Topix (+0.64%), Hang Seng (+0.65%) and ASX (+0.53%), but the CSI 300 index was down 0.07%. A slew of positive economic data out of the United States boosted the country’s equity markets: Dow (+1.40%), S&P (0.86%) and Nasdaq (0.67%). With the political tensions in Europe receding, investors’ confidence returned, and gains were seen on Italian FTSE MIB (+0.26%) and Spanish IBEX (1.09%).

The dollar index has come under downside pressure since it reached a 2018 peak of 95.03 on May 29. Trade frictions between the US and its key trade allies continue to undermine the index. Meanwhile, the euro edged higher (1.1811) following hawkish comments from several European Central Bank speakers.

On the economic front, US data on Wednesday showed the country’s trade deficit shrank to $46.2 billion in April from $47.2 billion in March. Today’s data includes German factory orders, revised European gross domestic product (GDP), US unemployment claims and a Bank of Canada (BOC) financial systems review. In addition, BOC Governor Stephen Poloz is speaking later.

Trade issues are set to dominate the financial headlines once the G7 summit gets underway on Friday. The US has isolated itself from several key allies and is fighting political battles on a number of fronts. Mexico and the European Union have imposed retaliatory tariffs on various US products, while French President Emmanuel Macron has openly said that France will not sign a G7 Statement, stating that progress must be made on tariffs, the Iran nuclear deal and the Paris climate accord before he would be consider signing.

The base metals have largely ignored the rising trade tensions, however, and on balance the mood is rather positive as the dollar index continues to decline and robust economic data has so far provided most metals with the impetus to trade higher.

This positive mood has spread through to the precious metals complex, with gold and silver prices reacting higher. With a June interest rate hike in the US largely priced in, the dollar index may remain under downside pressure in the short term.

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